Government proposals to hire only Saudi nationals in shopping malls would cause “major risks” for retailers, and result in substantial redundancies across the sector, a new report claims.
The report says retailers’ profit margins will shrink as wages, compensation and benefits packages all increase along with the recruitment of more Saudis.
Saudi Arabia’s Ministry of Labor and Social Development has announced plans to implement 100 percent ‘Saudisation’ in shopping malls, restricting all employment to Saudi nationals.
The policy has already been implemented in the telecoms and automotive retail markets over the past year, and is part of the kingdom’s Vision 2030 economic diversification strategy that aims to cut unemployment among Saudis from 11.6 percent to 7 percent.
However, Saudi nationals demand higher wages than expat workers, and this could hit the profits of retailers operating in the country, according to the report from BMI Research.
Expat workers account for a significant proportion of the labour market in Saudi Arabia, with retail and shopping malls a key example, the report said.
It cited figures from the Vision 2030 report, which said there were only 300,000 Saudi nationals out of 1.5 million workers employed in the kingdom’s retail sector in 2016, with expats accounting for about 80 percent.
The government’s latest proposals come at a difficult time for retailers, BMI added, with household spending slowing in the short term and the rise of e-commerce threatening to hit profits further.
“Although ‘Saudisation’ is key to the country’s economic diversification strategy, we believe it poses substantial and growing risks to retail companies that have often relied on importing foreign labour to meet skills shortages and keep costs low,” the report said.
“Retailers around the world have notoriously slim margins, with employee compensation as a major reason for this. Typically, when the minimum wage is raised in a country, this leads to a commensurate number of layoffs in order to keep total compensation in check.
“The Saudisation plan poses a significant risk for shopping malls and retailers in Saudi Arabia, as the cost of employing Saudi nationals is about 400 percent higher than expats on average, according to the National Transformation Program report.”
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